If you haven’t given much thought to your retirement plan lately, it might be a good time to start. That’s especially true if your strategy is focused on an Individual Retirement Account, or IRA. For millions of Americans, these accounts will end up providing the lion’s share of their available savings during retirement. Unfortunately, many account holders fail to properly fund their accounts during peak earning years, and end up missing out on a golden opportunity to maximize their savings and grow their nest egg as they should. To ensure that your retirement is properly funded, it’s important to learn how you can start to maximize those IRA contributions today.
Learn the Contribution Limits
One of the most important things that you can do to maximize your contribution efforts is to learn what you are legally allowed to contribute. After all, if you don’t know the rules, you won’t be able to effectively use them to your advantage. With your IRA, the law places an annual limit on the amount of money that you can contribute to the account. For 2017, that limit is $5,500 for the entire year, for account holders under the age of 50. That limit applies for both the traditional and Roth IRA. Those who have 401(k) plans in place will note that the IRA limit is substantially less than the $18,000 a year that those workplace plans allow. However, the IRA can still be an excellent option for those who don’t have access to employer-provided plans.
Age 50 or Older? Leverage the Catch-Up Rules
You’ll notice too that the $5,500 limit applies to account holders below the age of 50. There’s a reason for that. The law allows people age 50 or older to increase their contributions to catch up on their lifetime goals. Under these provisions, persons 50 or older can contribute an additional $1,000 each year, bringing their total annual contributions to $6,500. For those who have gotten a late start on retirement planning, this catch-up option can help to close the gap and ensure that their nest egg grows even more.
Make it a Priority
Of course, there are always those who find even these limits too daunting to meet. Some people limit themselves to token contributions throughout the year, and end up saving far less than they otherwise might. Life is, after all, anything but easy – and many people can struggle to get their priorities arranged in a way that frees up the money they need to secure a sound retirement fund. Here’s the problem, though: you only get one shot at making your retirement plan work. If you haven’t saved enough money to sustain your lifestyle by the time you’re ready to retire, there won’t be any second chances.
To avoid being left without the retirement savings you need, it’s important to prioritize retirement now. That doesn’t mean that you stop paying necessary bills, or make other radical changes that make you and your family uncomfortable, but it does mean making wise choices that prioritize your future over unnecessary spending today. The fact is that most of us spend hundreds of dollars a month on things that we can do without. If you dine out several times a week, and cut that expense in half, chances are that you can manage to save $100 or more each month. That’s an additional $1,200 that you could be contributing to your retirement account each year.
If you’re like most people, you can probably find other areas where you can cut back on wasteful spending. Minor changes in shopping habits, entertainment spending, and even food choices can sometimes yield hundreds of dollars of savings each month – all of which can help you to meet those maximum contribution goals.
How Maximum Contributions Can Impact Your Savings
To understand why this is important, let’s examine the type of difference that different IRA savings rates can make over a ten-year period. If you’re contributing $100 a month to your IRA, and earning compounded returns of just 6%, those savings will be worth $16,765 at the end of that ten-year period. If you contribute the maximum amount of $5,500 instead of that $1,200, you’ll have $76,844 at the end of ten years. If you also leverage those catch-up contributions and contribute that additional $1,000 a year, you’ll have more than $90,000 ten years later.
The thing to note is that you have three main factors that will determine the success of your savings effort: time, compounded interest, and the amounts that you contribute. You can control the time factor by beginning your savings effort as early in your working years as possible. You can’t always control the rate of your return, of course, but you can enhance your success when you give your money more time to work for you. The one area that you can control is the contributions that you make to your account – and it is there that you must focus your attention to have the best results.
What Type of Retirement Do You Envision?
In the end, it all comes down to the type of retirement you envision for yourself. Most of us are not content to imagine a retirement in which we’re barely making ends meet. It’s far more enjoyable to imagine an enriching second-stage of life that offers new opportunities to experience the world and continue to grow as complete human beings. That type of retirement rarely happens by accident.
We Can Help!
Your IRA can be a powerful vehicle for amassing a sizable nest egg during your working years. Like any retirement plan, however, it won’t achieve your objectives without effort from you. At the Law Offices of Mary A. Miller, P.C., we can help you to make the decisions needed to maximize your IRA contributions so that your account grows to meet your needs later in life. Through sound financial and retirement planning, you can achieve your retirement dreams with a minimum of sacrifice today. To learn more about how you can make every contribution to your IRA work to your benefit, contact us online or give us a call at (914) 939-6565 today.